1. Moving the markets

After the somewhat chaotic US presidential debate, the future markets headed lower by as much as 1%, with Asian trading being sloppy and choppy, while Europe also headed south.

None of that mattered, as renewed hopes for further coronavirus stimulus pushed the major indexes to higher levels throughout the session in addition to some encouraging economic data. Pending Home Sales soared 8.8% MoM, which was far better than the 3.1% rise expected. This sent the YoY rise in pending home sales to +20.5%, the biggest annual gain since April 2010, according to ZH. Of course, that comes as no surprise given the “tremendously low interest rates.”

ADP Employment also came in better than expectations with a 749,000 increase in jobs in September, which boosted hopes that Friday’s payroll number could come in at close to 800,000.

Today’s surge to higher levels hit a glass ceiling mid-session, when the Mnuchin-Pelosi meeting turned into a dud. Senate majority leader McConnell poured cold water on the rally by declaring that the Senate and House are “very, very far apart” on stimulus talks. He made it clear that they will not come up to the $2.2 trillion number the Democrats were demanding.

The rally hit the skids and south we went but last hour buying prevented the indexes from slipping into the red.

Gold rode the giant rollercoaster by getting pumped and dumped but ending up on the downside, as US 10-year bond yields surged. Could have been quarter-end rebalancing…

In the end, while the quarter was positive for the indexes, equities suffered their worst September since 2011. And now, we’ll be facing the notoriously volatile October—where anything can happen.

According to Bloomberg, on average, the S&P 500 has lost 2.5% in October over the past seven election years (since 1992), the worst performance of any month during that period.

1. Moving the markets

Today was opposite day. After yesterday’s strong rally fed by enthusiasm over a fresh stimulus deal and new coronavirus vaccines, today’s early bounce hit the skids, as all these fuzzy feelings gave way to the reality that nothing may be accomplished, while pandemic deaths are on the rise in NY.

In the end, equities fell modestly and snapped a 3-day winning streak, but Gold bucked the trend, regained its $1,900 level, and closed solidly in the green supported by a sliding US Dollar and dropping bond yields.

Anxiety and uncertainty prevail giving tonight’s upcoming debate. Added CNBC:

Traders also looked ahead to the first debate between President Donald Trump and Democratic nominee Joe Biden set for Tuesday night. Some Wall Street analysts believe the first debate of this cycle could be more consequential for the markets than most debates, with a clear victory by one candidate possibly creating significant volatility.

“Everyone knows what they’re going to get with Trump, for better or worse,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The question then is what will Biden deliver. If Biden doesn’t kick any balls in his own net, then the market will take that as a win for him.”

For sure, we will see a market reaction tomorrow no matter what the outcome, however, the magnitude of it is the big unknown.

1. Moving the markets

Last week’s sour market sentiment started to swing in the opposite direction on Friday with equity bulls sensing a turnaround, despite election uncertainty. Even though September has been a down month, it was not as bad as originally feared by traders, hence the sudden outlook that the bull may have more room to run.

The futures started things on a positive by tracking solid gains in European and Asian markets, as optimism reigned that the recent selloff was overdone. The dollar slipped and bond yields rose reversing the recent trend.

Also assisting the buoyant mood and providing a boost to equities were comments from Speaker Pelosi that a last-minute coronavirus aid deal may still be a possibility. That news alone put a bottom under the ramping markets, and we never looked back, as a steady climb pushed the major indexes solidly in the green.

I took the opportunity to add some equity exposure to our holdings, which I consider a fairly low-risk proposition due to our Trend Tracking Indexes (TTIs) having been stuck within striking distance of a potential “Sell” signal two trading sessions ago thereby lessening the downside risk.

Today’s advance was broad based and not just focused on tech, as the S&P 500 managed to keep up with the Nasdaq for most of the session, while global stocks outperformed the domestic main indexes for a change.

This surge could be the beginning of a new bullish phase, or simply be an outlier event. Since no one has any idea how this will play out, we will continue to track our trailing sell stops and execute them, should the need arise.

1. Moving the markets

The whipsaw moves in the major indexes continued with utter abandon when, after a nice rebound high for the session, markets hit a glass ceiling and tumbled back into the red.

Traders were on edge early on when the futures failed to recover from Wednesday’s spanking, as a host of Fed speakers urged further fiscal stimulus, especially in view of the fact that another 870k Americans filed for first-time unemployment benefits—over the last week.

These claims have been steady, unfortunately, and remain at a pace that is four times the pre-Covid-lockdown average. Despite some pundits seeing a light of the end of the tunnel, it certainly does not look like anything resembling a V-shape type of recovery.  

The mid-day reversal was caused by news that “no talks” were scheduled between Mnuchin and Pelosi, killing early speculation that a new round of economic stimulus talks were about to resume.

ZH summed up the dilemma like this:

Alas, that does not answer the $64 trillion question: who will blink first, Powell or Pelosi, and linked to that: what is the strike price of the Pelosi Put? In other words, does the S&P have to drop much more before the top House Democrat agrees to the republican bid of a $1.5 trillion stimulus, or will she hold out for the $2.2 trillion Democrat ask, no matter where the stock market is. That said, one would assume that Democrats would be delighted to see a stock market crash ahead of the election: after all, Trump has repeatedly confirmed that he views stocks as the only “objective” barometer of his administration, which is Democrats would be delighted if said barometer were to be much, much lower.

Helping the markets and precious metals to remain in a more upbeat mood was the US Dollar, which ended not only a 4-day win streak but also its biggest surge since March.

And again, when looking at the big picture, we can see that the analog to 1929 still holds:

Will history really repeat itself?